Saturday, February 14, 2009

Rebound: basketball false advertising verdict reversed

Follow the links to read the saga in the districtcourt, culminating in denial of Molten’s motion for a judgment as a matter of law.The Federal Circuit, applying 9th Circuit law, reversed the jury award of over $8 million against Molten for false advertising.

Baden makes high-quality basketballs, and has a patent on one type of ball with raised seams and a layer of padding, marketing them as containing “cushion control technology.”Molten competes with Baden.In 2002 or 2003, it began selling balls with an inner padded layer, marketing them as containing “dual-cushion technology”—a foam layer around the core of the ball and a second layer of soft rubber seams.

Baden sued for patent infringement and false advertising.The district court found patent infringement, dismissed some false advertising claims and sent others to the jury.The district court rejected claims based on ads using “proprietary” and “exclusive,” as barred by Dastar.The theory was that “proprietary” and “exclusive” signalled that Molten invented the technology.(Why this is barred by Dastar, especially in a §43(a)(1)(B) claim, specifically mentioned by Dastar as remaining available, is a mystery to me.)However, the court let Baden go to trial on “innovative,” which doesn’t necessarily connote who invented the technology.

Trial focused on the claim that Molten falsely advertised that dual cushion technology was a Molten innovation.Based on its prior ruling of patent infringement, the court excluded some of Molten’s proposed evidence, including witness testimony about the differences between the parties’ basketballs.The jury returned a verdict of a little over $38,000 for the patent infringement and, as noted above, $8 million for false advertising.

In its denial of Molten’s motion for judgment as a matter of law, the court acknowledged that, though some testimony at trial conflated “innovative” and “proprietary,” but held that the testimony made clear that the witnesses believed the ads were false because Molten’s product wasn’t new.

The Federal Circuit agreed with Molten that Dastar barred the entire claim.Because of its inherently limited wording, §43(a) can’t be a “federal codification of the overall law of unfair competition.”Molten’s ads don’t concern the “origin of goods” under §43(a)(1)(A), and they aren’t about the “nature, characteristics, [or] qualities” of those goods under §43(a)(1)(B).

True, Dastar said that a false advertising claim could survive if the copiers of the Crusade series gave purchasers the false impression of significant difference from the original Time/Life series, giving rise to a claim for misrepresentation of nature, characteristics or qualities.Baden argued that “innovative” was a similar misrepresentation.But Dastar’s dictum doesn’t mean that false designation of authorship claims are actionable under §43(a)(1)(B).If they were, there’d be overlap between the Lanham and Patent Acts.Moreover, the 9th Circuit has held that “nature, characteristics and qualities” doesn’t refer to the “licensing status” of a copyrighted good.These terms have to refer to things like quality of audio and visual effects, not licensing status; authorship, like licensing status, isn’t covered.

So, the issue is whether the false advertising claims cover anything more than false designation of authorship.But “innovative” doesn’t imply anything physical or functional about the basketballs.All it means is that the manufacturer created something new or that the product is new.(Note that “new and improved” is now apparently fair game for anyone in the 9th Circuit, no matter how old and unimproved the product is.)

Baden repeatedly alleged that Molten falsely claimed that Molten, not Baden, created the innovative dual-cushion technology, and argued that the ads were false precisely because Molten was not the source of the innovation, with statements like “They took our technology and they began to advertise it as their own invention.”Baden waived any claims limited purely to novelty and newness, so the district court’s reasoning doesn’t apply: Baden’s argument is not simply that the claim to be “innovative” is false, but that Molten falsely claimed that the innovation is Molten’s.

Framed like this, I don’t have a huge disagreement with the result, but the reasoning seems overbroad to me.It seems that Baden made this argument so as to avoid a puffery defense on “innovative” alone, but that backed it into a corner on the issue of whether it was alleging that the problem was a false claim of authorship/inventorship.To the extent that Molten was making a false claim of authorship (which I think is kind of shaky, given the context), I think the real problem is materiality, since consumers are unlikely to care about the source of the genius when what they want is innovation.

Finally, the Federal Circuit noted that other courts outside the 9th Circuit might come to a different result.

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